The Consolidated Appropriations Act of 2021, passed on 12/21/20, brings about several changes that may affect your wallet. A few items that may benefit you include:
Changes to Flexible Spending Accounts (FSA)
Several temporary changes are available for Flexible Spending Accounts due to the pandemic. Your employer most adopt these changes for you to take advantage of them.
- If you put funds into an FSA in 2020 (either a dependent care FSA or a Health FSA), you can now carry over any unused funds at the end of 2020 to be used in 2021. You can also carry over any unused funds at the end of 2021 to be used in 2022.
- In 2021, you can modify your contributions to an FSA at any time throughout the year.
Changes to Charitable Contribution Tax Deductions
- Above-the-line charitable contribution deduction
The CARES Act, passed in the spring of 2020, allowed for an “above-the-line” tax deduction of up to $300 for cash charitable contributions made in 2020. The latest act extends this tax benefit through 2021 and increases the amount a couple filing married filing jointly can deduct to $600 (for 2021 only). - 100% of AGI charitable deduction
For taxpayers who itemize deductions, the CARES Act had provided for the ability to deduct charitable contributions up to 100% of your adjusted gross income (AGI) when making cash donations. This has been extended through 2021. This additional deduction is only available when making cash donations and does not extend to donations to donor advised funds.
Additional Recovery Rebate
The latest act authorized a new round of stimulus checks. The qualifications to receive a check are similar to those of the CARES Act; one change is the amount. This round of checks allows for a base amount paid of $600 for each eligible individual. Eligible individuals are any taxpayer filing a return as well as any children for whom a Child Tax Credit may be claimed. You may have already seen it hit your bank account if you qualify.
Other Provisions
- The tuition and fees tax deduction was eliminated; it was replaced by a higher income threshold to allow more taxpayers to qualify for the Lifetime Learning credit.
- Federally subsidized unemployment benefits were extended.
- The threshold for deducting medical expenses was made permanent at 7.5% of adjusted gross income.
- For taxpayers who claim the Earned Income Tax Credit, they may be able to use their 2019 earned income in calculating the credit if their 2020 earned income is too low to qualify.
We’ve provided highlights from the Consolidated Appropriations Act of 2021 and will be happy to talk to you about these or other changes that could impact your finances. Please contact us with any questions.
